PART B PROBLEM SOLVING QUESTIONS20 MARKS

Answer the following questions with reference to relevant case laws and sections of the Corporations Act 2010

QUESTION 1 10 MARKS

1.Having considered the various options for funding the organic farm, the board of OzFarm Pty. Ltd. has decided on a mix of debt and equity. In order to raise additional cash for its equity investment in the new project, OzFarm decides to issue additional ordinary shares and a new class of preference shares. OzFarm would like your advice on the legal rules that govern the proposed offer and issue of new shares.

2.Thinking back to the work we did on directors' duties, what should the directors of Ozfarm Pty Ltd. do in deciding on the number of shares to be issued, the subscription price, and the identity of those to whom the shares should be offered? The board of directors wants your advice whether they can engage in public fundraising and what would be the requirements for their company to engage in public fundraising? 2 marks

3.OzFarm Pty. Ltd. would also like to raise finance to fund the purchase of a block of farm land to expand its business. It is proposing to borrow $2 million from Big Bank using the building as the security for the loan. The two directors, Mitch and Match are in oblivion to the fact that the company is experiencing a downturn in demand for organic produce due to the increasing unemployment as a result of the economic recession in the COVID crisis. OzFarm already had existing debts to the tune of $300,000 owing to a large supplier, Pallet Pack. In order to reduce this debt, the directors are using the line of credit worth $50,000 (similar to using the credit card). A few months down the track, it is becoming clear to the directors that they would be running out of cash shortly, given the demand for their products have decreased significantly.

Advise whether the directors have breached any of their required directors' duties and if so whether they can rely on any defence?2 marks

4.OzFarm is in some financial difficulty as a result of the problems with the blockchain project. Nevertheless the two shareholders, Big and Bold, are hoping to receive a dividend. Although OzFarm did not make a profit in the financial year, its directors decide to pay a dividend of $0.40 per share. Is this allowed? If the payment of the dividend causes Ozfarm to become insolvent, what are the consequences for the directors of OzFarm and the company ?2 marks

5.OzFarm has been considering buying a major new piece of feeding machinery for the sheep. The machinery costs $5 million. OzFarm's Board of Directors has not yet made a final decision to buy the machinery. Would a contract to buy the machinery be enforceable by the machinery manufacturer if the contract was executed by and being signed by David, the director for and on behalf of OzFarm?2 marks